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Six Possibilities
COST ACCUMULATION SYSTEM V A L U A T I O N
M E T H O D
Job Order
Actual Normal Standard
Process
Actual Normal Standard
Job 1 100
Job 2 200
Job 3 500
WIP Control
Job 1 Job 2 Job 3 Total 100 200 500 800
WIP Control
direct material (from material requisition) direct labor (from time sheets or labor tickets) applied overhead budgeted cost information
When job is complete, use job order cost sheet to analyze actual costs compared to budgeted costs
Differences
Absorption costing Fixed manufacturing overhead is a product cost Variable costing Fixed manufacturing overhead is a period cost Variable operating expenses are subtracted from product contribution margin to equal contribution margin
Activity-Based Management
Focuses on activities during production and performance process Improves the value received by customers Enhances profitability
Activity
An activity is a repetitive action performed in fulfillment of a business function
Activity-Based Management
Activity analysis Cost driver analysis Activity-based costing Continuous improvement Operational control Quality management Business process improvement Performance measurement
Activity Analysis
Non-value-added activity Increases time spent on Value-added activity product or service but does Increases worth of not increase worth product or service to a Unnecessary from customer customer perspective Customer is willing to Can be reduced, redesigned pay for it or eliminated without affecting market value or quality Business-value-added activities are essential
Activity-Based Costing
Recognizes several levels of costs Accumulates costs into related cost pools Uses multiple cost drivers to assign costs to products and services
Two-Step Allocation
Collect costs in general ledger and subsidiary accounts Identify activity centers Accumulate costs into activity center cost pools cost drivers Allocate costs to products and services
activity driver measures demands placed on activities, thus, the resources consumed by products/services